Aggressive Investment Strategy

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What is an 'Aggressive Investment Strategy'

A portfolio management strategy that attempts to maximize returns by taking a relatively higher degree of risk. An aggressive investment strategy emphasizes capital appreciation as a primary investment objective, rather than income or safety of principal. Such a strategy would therefore have an asset allocation with a substantial weighting in stocks, and a much smaller allocation to fixed income and cash. Aggressive investment strategies are especially suitable for young adults because their lengthy investment horizon enables them to ride out market fluctuations better than investors with a short investment horizon. Regardless of the investor’s age, however, a high tolerance for risk is an absolute prerequisite for an aggressive investment strategy.

BREAKING DOWN 'Aggressive Investment Strategy'

The aggressiveness of an investment strategy depends on the relative weight of high-reward, high-risk asset classes such as equities and commodities within the portfolio.

For example, Portfolio A which has an asset allocation of 75% equities, 15% fixed income and 10% commodities would be considered quite aggressive, since 85% of the portfolio is weighted to equities and commodities. However, it would still be less aggressive than Portfolio B, which has an asset allocation of 85% equities and 15% commodities.

But even within the equity component of an aggressive portfolio, the composition of stocks can have a significant bearing on its risk profile. For instance, if the equity component only comprises blue-chip stocks, it would be considered less risky than if the portfolio only held small-capitalization stocks. If this is the case in the earlier example, Portfolio B could arguably be considered less aggressive than Portfolio A, even though it has 100% of its weight in aggressive assets.

An aggressive strategy needs more active management than a conservative “buy-and-hold” strategy, since it is likely to be much more volatile and would need more frequent adjustments to tailor it to changing market conditions. More frequent rebalancing would also be required to bring portfolio allocations back to their target levels, as the volatility of the assets that comprise an aggressive portfolio will quite often lead allocations to deviate significantly from the original or target weights.